Functional divisions where manufacturing processes are performed

In the process costing system, the cost object is the different phases of the production process, the costs are accumulated in each one during a period of time, where the phases of the production process are called cost centers, departments or sub-processes.

These are functional divisions where specific and repetitive manufacturing processes are carried out (cutting, polishing, painting, packaging, among others). In the process costing system, the cost centers are responsible for the costs incurred in their area.

In this sense, each supervisor must prepare a production cost report for each period, where he reports all the costs incurred in the center (materials, labor and indirect costs), the units of products manufactured, and the unit production costs.

Therefore, the production cost report is used to determine the cost of finished products and the final inventory of products in process. The equivalent unit of production is used to value units in process.

The production costs will be transferred from one cost center to another, together with the physical units of the product in its manufacturing process, so that the total cost of production is found at the end of the production process (last cost center), by sequential cumulative effect.